The Suitability Of Time-Driven Activity-Based Costing For Boral Ltd

Description of the client company

The modern business environment whether the large or small, needs that the management should have the clear understanding of the cost and an ascendable easy to understand the costing model would be speedily able to reflect the changes in the business when they take place. The present study is based on the description of the Time-driven Activity Based Costing along with its features. The report will determine the ways through which the Time-driven Activity Based Costing system is different from the activity based costing and traditional costing systems. Furthermore, an in depth discussion will be performed regarding the implementation of the TDABC in the client company of Boral limited.

Boral is a global building goods and construction material company having three strong divisions. They are mainly the better performing, well established materials trade of Boral Australia with fast growing USG Boral interior products joint venture in the regions of Asia, Australia and the middle east. The company was founded in Australia having extensive operations in the united states and in the regions of Asia. USG Boral produces and deliveries the plasterboard based on the wall, ceiling systems and accessories in Asia, Australia and the middle east.  

The ABC method of costing currently the preferred among the full methods of costing has been the subject to a large number of criticism for the approach used and some of the users have abandoned using this method (French et al. 2016). The original activity based costing methods offer a strong model for costing of diverse products and service however the Time-driven Activity Based Costing can record more amount of variation and complexity by offering the similar better quality information without much of the drawbacks related with the ABC methods.

Modern day customer focus discovers business generating and stocking a wide variety of products which ultimately supports larger order entry and channels of order tracking, producing and delivering in small order and offering numerous level of technical support (Öker and Ad?güzel 2016.). Following the increased number of customer service there is a need for managing the customers and appropriately channelling the profit. ABC has attracted the attention to differentiate cost among the higher and lower volume, custom and standard products. Time-driven Activity Based Costing can offer better quality information about customer and channel the profitability by highlighting the cost differences among the low demand, easy to serve customers and higher demand complex customers.

The method of TDABC can identify the volume of every unit or procedures and apportions the cost of this ability to the resource group over the objects of cost depending upon the time needed to execute the activity (Stouthuysen et al. 2014). Given that it is noticed that the demand for the work in these departments falls the TDABC can estimate the quantity of the resources released. The TDABC can capture the diverse features of an activity through the time equation in which the time that is consumed by the activity is regarded as the functions of the different characteristics. The below stated are the features of the TDABC which are as follows;

1. The model of TDABC is easy and faster to create an accurate model
2. The model integrates better with the data that is available from the ERP and customer relationship administration system which makes the system additionally more dynamic and less people oriented (Siguenza-Guzman et al. 2014).
3. Drives cost to transactions and orders by using the specific characteristics of specific orders, processes, supplies and customers.
4. The model can be run on monthly basis to record the economics of the current operations
5. The model offers visibility to process the efficiencies and capacity utilization.
6. The model possesses the feature of forecasting demands for resources by enabling the organizations to budget for the resources capacity based on the predicted quantities of order and complexity (Shu et al.2014).  

Description of Time-driven Activity Based Costing and its features

In the present context the TDABC represents the variation of the activity based costing with the easier and approachable operations for the executions of the times of the activities that is necessary to manufacture the product and offer the service (McLaughlin et al. 2014). The traditional costing on the other hand assigns the production overhead in respect of the capacity of the cost driver, namely the quantity of direct labour hours necessary to manufacture an item.

The cost driver forms the factor which results the cost to occur, namely the machine hours, direct labour hours and the direct material hours. The ABC assigns the cost of producing the product in respect of the activities that is required to manufacture the item (Namazi 2016). With the help of the TDABC it is possible to gauge into the effectiveness of the process at the given level of available capacity versus the capacity utilization. Arguably the time equations or the cost equations lead to an easy and less expensive system than the traditional ABC method.

The TDABC is regarded as the system that is more affordable and economically very powerful than the ABC system of costing (Monroy, Nasiri and Peláez 2014). This is because it simplifies the process of costing and cuts the surveys and interviews of the typical ABC system of costing. The model of TDABC allocates the costs directly to the cost objects. The model of traditional absorption costing distributes the cost of resources by making use of the rate of cost capacity to determine the requirement of the resources for each of the cost object.

In the words of Kaplan (2014), it is found that the model of TDABC only needs the estimations of time to process the orders of the customers and it is not necessary that they should be equal. This is because the model of TDABC Costing enables the approximations of numerous times depending upon the particular features of each application by using the replica of variables and equations. Under the ABC methodology, rates of the cost drivers is used to assign the cost among the department to each of the cost object (Lee, Austin and Pronovost 2016). Regarding the Time-driven Activity Based Costing the phase of definition of resources consumptions by the activities is not considered hence it is not essential to allocate this costs. The below stated table represents the differences between the TDABC, ABC and Traditional ABC

ABC	Time Driven ABC	Traditional- ABC
The method identifies the different overhead activities	Recognizes the numerous resource groups	Assigns the manufacturing overhead to unit produced.
Assigns the overhead to several different activities by making use the resource driver	Approximates the total cost of each of the resource group	Makes the use of assumptions where the volume matric forms the driver of manufacturing overhead cost.
Recognizes the driver for each of the activities	Determines the practical capacity of each of the resource group such as available working hours and training hours.	Under the traditional ABC the accountants assign the manufacturing costs only to the products (Ajupov, Kurilova and Ivanov 2015).
Determines the driver of activity rate by dividing the total activity costs from the practical amount of the activity driver.	Computes the cost of each unit resource group by dividing the total cost of the resources group through the practical capacity.	The traditional accounting fails to allocate the non-manufacturing costs which is associated with the production of an item such as the administrative expenditure.

On understanding the suitability of the TDABC in the Boral Ltd it can be stated that the model is easy to understand, cheaper and very powerful than the ABC and Traditional ABC. The model of TDABC makes the process of costing very easy by eliminating the requirement of interviewing and survey employees so that the company allocate the resources of cost to the activities prior to driving them down to the cost objects (Hoozée and Hansen 2014). The new model of TDABC would help the Boral ltd in assigning the resources directly to the cost objects by using the elegant framework which would be needing only two set of approximations which is not very hard to obtain. The model computes the cost involved in the supply of resource capacity. For instance, the department or process in Boral ltd engaged in handling of customers’ orders can make use of the TDABC to compute the cost involved in resources, supervision, supervision and technology to the department or procedure.

Ways through which TDABC differs from the ABC and traditional costing system

TDABC makes the use of the capacity cost rate to determine the departmental resource costs to the cost object by ascertaining the demand for resource capacity, which is required by each of the cost objective (Angelopoulos and Pollalis 2017). In compliance with the example of the customer order department the model of TDABC would only need the estimations of time that is needed in Boral Ltd to process the order of particular customer. Additionally, the model of TDABC does not need the customer order to be the same as it enable the time approximations to vary based on the specific orders for goods that are fragile or hazardous or order from the new customer without the current credit record.

The model of TDABC would additionally stimulate the original process that is used to perform the work with the help of Boral Ltd. The model would enable the company to capture a large number of variation and complexity than the conventional model of ABC without any need of creating the demand for the data estimates, storage or processing capabilities (Mahal and Hossain 2015). By making the use of the TDABC, Boral Ltd can hold the difficulty instead of being forced to make use of the easy, inaccurate ABC models in its business.

TDABC avoids the stage of activity definition and the need for distributing the cost of the department to the various activities that is performed in the department. The approach of time driven escapes time consumption and subjective activity based survey task of conventional ABC (Almeida and Cunha 2017). The model makes the use of the time which directly allocates and assigns automatically the resource costs to the activities conducted and transaction processed. For Boral Ltd the capacity cost rate of the department and the capacity use by every single transaction processed in the department. The model of TDABC would enable the Boral Ltd to estimate straightforwardly and quantitatively.

A large number of companies uses the system of ERP that at present store the records on order, packing, delivery method and other features (Morris, Kocakülâh and Yeager 2014). These kind of data that are order specific enables the particular time demands for any of the given order to be quickly determined by an organization. However, for Boral Ltd the time driven approach to the ABC would be helpful in capturing the complexity of the business under more simplified manner for varying transactions by considering each variant of the procedure as the distinct activity. An assertion in this regard can be bought forward by stating that the managers of Boral Ltd can add the complexity to the model by applying new elements in the time equation. This would place less strain on the Boral business system by incorporating the model of TDABC.

Conclusion: 

Conclusively the objective of the study was to clearly represents the differences between the ABC and the TDABC. The analytical comparison of the model has represented that system possess both the qualitative and quantitative different approaches in generating the product costs. The ABC method of costing usually pools the resource to activity information under the column of resource whereas the TDABC pools the information under the subtask of the activity rows. Unfortunately, the difficulties of applying the traditional ABC system has prohibited the activity based costing from being regarded as the effective and up to date data administration tool. The TDABC has positively overcome these problems and provides the managers with the methodology that integrates better with the data that is available from the ERP and CRM system.   

Reference List:

Ajupov, A.A., Kurilova, A.A. and Ivanov, D.U., 2015. Formation of Financial Planning for the Automotive Industry. Mediterranean Journal of Social Sciences, 6(1 S3), p.40.

Almeida, A. and Cunha, J., 2017. The implementation of an Activity-Based Costing (ABC) system in a manufacturing company. Procedia Manufacturing, 13, pp.932-939.

Angelopoulos, M. and Pollalis, Y., 2017. Using ABC costing method with in a KPI-based framework to a Lean transformation of a Greek Public Company.

French, K.E., Guzman, A.B., Rubio, A.C., Frenzel, J.C. and Feeley, T.W., 2016, September. Value based care and bundled payments: Anesthesia care costs for outpatient oncology surgery using time-driven activity-based costing. In Healthcare(Vol. 4, No. 3, pp. 173-180). Elsevier.

Hoozée, S. and Hansen, S., 2014. A comparison of activity-based costing and time-driven activity-based costing. Journal of Management Accounting Research.

Kaplan, R.S., 2014. Improving value with TDABC. Healthcare Financial Management, 68(6), pp.76-84.

Lee, K.K., Austin, J.M. and Pronovost, P.J., 2016. Developing a measure of value in health care. Value in Health, 19(4), pp.323-325.        

Mahal, I. and Hossain, M.A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.

McLaughlin, N., Burke, M.A., Setlur, N.P., Niedzwiecki, D.R., Kaplan, A.L., Saigal, C., Mahajan, A., Martin, N.A. and Kaplan, R.S., 2014. Time-driven activity-based costing: a driver for provider engagement in costing activities and redesign initiatives. Neurosurgical focus, 37(5), p.E3.

Monroy, C.R., Nasiri, A. and Peláez, M.Á., 2014. Activity Based Costing, Time-Driven Activity Based Costing and Lean Accounting: Differences among three accounting systems’ approach to manufacturing. In Annals of Industrial Engineering 2012 (pp. 11-17). Springer London.

Morris, J.T., Kocakülâh, M.C. and Yeager, M., 2014. EVALUATING COMMERCIAL LOANS WITH ACTIVITY-BASED COSTING: A Solution for Banks in Current Economic Times. Journal of Performance Management, 25(2), p.40.

Namazi, M., 2016. Time-driven activity-based costing: Theory, applications and limitations. Iranian Journal of Management Studies, 9(3), p.457.        

Öker, F. and Ad?güzel, H., 2016. Time?driven activity?based costing: An implementation in a manufacturing company. Journal of Corporate Accounting & Finance, 27(3), pp.39-56.

Shu, F., Weidong, Z., Zhuo, L.Z., Haibin, C. and Yaohui, Z., 2014. The application of time driven activity-based costing in fine cost management of the hospital. Jiangsu Healthcare Administration, 6, p.063.

Siguenza-Guzman, L., Van den Abbeele, A., Vandewalle, J., Verhaaren, H. and Cattrysse, D., 2014. Using Time-Driven Activity-Based Costing to support library management decisions: A case study for lending and returning processes. The Library Quarterly, 84(1), pp.76-98.

Stouthuysen, K., Schierhout, K., Roodhooft, F. and Reusen, E., 2014. Time-driven activity-based costing for public services. Public Money & Management, 34(4), pp.289-296.